You Have Been Asked to Evaluate the Pay of English

question 38

Essay

You have been asked to evaluate the pay of English Professors and Economics Professors at a small liberal arts college. The college's personnel department has generated some supply and demand information from similar colleges, which is presented in the diagrams below. (a) Illustrate a market-based pay scale for each type of professor.
(b) Illustrate a pay scale based upon the principle that "a faculty member is a faculty member: they are all teachers, the only difference is the subject that they teach. They should receive equal pay for equal work."
(c) Describe what difficulty the college might have in its recruiting process if it follows the pay system in (b) rather than that in (a).

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to present value, often reflecting the cost of capital or risk level.

Payback Method

A method of investment appraisal that calculates the time required for the cash inflows from a project to repay its initial investment.

Cash Flows

The total amount of money being transferred into and out of a business, affecting the company's liquidity.

Cost Of Capital

The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds.